Arenas and stadiums: Do they make economic sense?;

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ARENAS AND STADIUMS
Do they make economic sense?
by JOHN G. FOY, JR. / Partner, Detroit
Cities struggling to spur growth, boost civic pride, and increase revenue have turned to a variety of capital projects —shopping malls, arts centers, new government build-ings, and, importantly, sports arenas. The recent boom-bust cycle of sports center development is an excellent object lesson in this time of governmental budget crunches. It suggests the complexity of problems to be addressed if expectations are to be fulfilled.
In 1972, Denver voters turned down legislation to finance the 1976 Winter Olympics in their city; the Games were moved to Innsbruck,
Still a topic of discussion is the cost of capital construction for the 1 976 Summer Olympics in Montreal —not only in the economic and political circles of that city, but also in any other city mentioned as a site for future Games.
After lengthy negotiations be-tween the City of Los Angeles and the International Olympic Commit-tee, it appears that an agreement has been reached that will protect Los Angeles taxpayers in the event the 1984 Games in that city suffer a loss.
Despite the popularity, despite the glamorous image of the sports world, its colorful impresarios no longer seem so able to persuade American taxpayers and local officials to spend tax dollars for an arena or stadium whose construc-
tion is against their better financial judgment. An era of uninhibited expansion in professional sports, of new stadiums and arenas built with civic pride and civic ambition ap-pears to have wound down.
Whether or not to spend public money to construct an arena or stadium now prompts a vigorous community discussion. What are the precise benefits, what are the finan-cial risks that go with building a sports-related facility? The pro-moters must back up their enthusi-asm with hard facts.
Some segments of the commu-nity, for example, argue that the
public should not provide tax dollars so that privately owned sports teams, the primary tenants of these arenas and stadiums, can make money from a publicly financed facility. Conversely, other segments of the community argue that an arena or stadium can mean addi-tional business and improved morale to a community. The situation is the same, whether it concerns a relative-ly small 3,000-5,000 seat arena that costs $2-$5 million in a city of 40,000-50,000, or a large $100-$200 million stadium with 60,000-80,000 seats in a large metropolitan area.
A common problem for public arenas or stadiums built in the past ten years is that the facility operates in the red if debt service —the cost of the initial borrowing for construc-tion—is included. When facilities claim they are operating in the black, what many of them really mean is that they are covering operating costs. Excluding debt service is often considered acceptable, however, since so many facilities do not even cover operating costs. When older stadiums and arenas actually do operate in the black, it is usually because their original construction cost was much lower. In the early 1960s, a large stadium's cost was in the range of $30 million to $50 million. A comparable stadium today ranges from $80 million to $150 million.
So why do communities across
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